ING Q1 Net Profit Beats Expectations by 9%; Goldman Sachs Raises Target Price to €31.10

Overview

This report provides Goldman Sachs’ commentary and model updates on ING Groep NV’s Q1 2026 results. The core conclusion is that ING delivered a strong Q1 performance, with net profit exceeding the company’s internally compiled consensus estimate by 9%, primarily driven by better-than-expected commercial net interest income (NII) and fee income, along with effective operating cost control. Based on this, Goldman Sachs has comprehensively raised its earnings forecasts for 2026–2028 and increased its 12-month target price from €29.20 to €31.10, maintaining a 'Buy' rating. The report highlights ING’s potential to continue outperforming peers through liability-side spread expansion, cost discipline, and capital returns.

Core views

Revenue: Commercial NII is the key driver. Goldman Sachs applied a replicating portfolio model, marked-to-market using the latest forward rate curve, resulting in a 1.5%–2.5% increase in commercial NII forecasts for 2026–2028 versus prior estimates. Q1 data showed the group’s liability-side spread widened by 5 bps quarter-over-quarter to 104 bps. Management subsequently raised its full-year 2026 liability-side spread guidance from the lower end to the midpoint of the 100–110 bps range, noting that if the forward rate path materializes, this range could be temporarily exceeded. Goldman Sachs forecasts 2026 commercial NII at approximately €16.9 billion (above management’s revised guidance range of €16.5–16.7 billion), rising further to €18.5 billion and €19.9 billion in 2027 and 2028, respectively. Fee income grew 13% year-over-year in Q1, beating expectations by 3%, supported by strong client trading activity; Goldman Sachs has raised its 2026 fee growth forecast from 8.1% to 8.7%. Although other income was reduced by €200 million due to market volatility, overall revenue forecasts remain 2%–4% above consensus. Costs and Asset Quality: Efficiency gains realized; asset quality remains sound. Total expenses in Q1 were 2% below expectations (€790 million), mainly due to lower regulatory and operating costs, partially benefiting from prior restructuring-driven efficiencies. A €300 million one-off charge was recognized in the quarter (including €250 million related to workforce reductions in Wholesale and Retail Belgium), expected to deliver approximately €200 million in annualized cost savings. Goldman Sachs has reduced its total expense forecasts for 2026–2028 by about 1%, implying cost-to-income ratios (CIR) of 51.8%/48.6%/46.8%, respectively—1–2 percentage points better than consensus. On asset quality, Q1 loan loss provisions (LLPs) were 5% below expectations, with a cost of risk (CoR) of 19 bps, slightly below the through-the-cycle average (~20 bps). Although management added a €940 million overlay provision for Middle East conflict exposure, Goldman Sachs only modestly increased its annual LLP forecasts (by €30–500 million per year) and maintains its 2026–2028 CoR forecast at a moderate 20 bps. Capital and Valuation: Strong capital position; clear valuation upside. ING announced a share buyback program of up to €1 billion (primarily funded by ~20 bps of front-loaded provisions, fully deducted in Q2, impacting CET1 by ~30 bps). The CET1 ratio stood at 13.0% at quarter-end (12.9% post-buyback deduction), slightly below expectations but down only 10 bps quarter-over-quarter, reflecting controlled risk-weighted asset (RWA) growth. Management reaffirmed expectations for additional 15–20 bps of capital release via SRTs over the remainder of 2026 and plans to extend this tool to retail operations. On valuation, Goldman Sachs maintains its 10.0x P/E multiple but adjusts the weighting to 75% on 2027E EPS and 25% on 2028E EPS (previously 100% on 2027E). Combined with upward earnings revisions, this drives the target price to €31.10.

Analysis framework

Goldman Sachs’ analytical framework follows a typical European bank earnings commentary structure: first validating management guidance credibility against actual Q1 results, with a focus on deconstructing volume and pricing drivers of net interest income (NII)—particularly liability-side spreads, the current industry focal point; second, assessing whether structural cost changes (e.g., restructuring efficiency gains) are sustainable; third, evaluating the alignment between capital generation capacity and shareholder return policies; and finally, deriving the target price through earnings forecast revisions and valuation multiple roll-forward. This methodology emphasizes dynamic balance sheet tracking—especially marginal changes in liability-side pricing power under evolving rate environments—rather than static financial ratio analysis.

Methodology notes

• Valuation MethodPE/PEG valuation

  P/E Multiple Roll-Forward with Cross-Period Weighting

  Goldman Sachs not only applies a fixed P/E multiple but also adjusts the weighting across forecast years based on earnings growth visibility (e.g., 75% × 2027E + 25% × 2028E). This reflects differentiated analyst confidence in near-term versus medium-term earnings predictability, avoiding valuation distortions caused by single-year EPS volatility.

• Financial Industry-Specific MetricsNet Interest Margin (NIM) Analysis

  Liability Margin as Core Driver of NII

  In European banking analysis, the liability margin—the spread between yields on low-cost funding (e.g., deposits) and market rates—is a critical indicator of profitability in rising or high-rate environments. This report assesses NII sustainability by tracking quarterly changes in this metric and adjustments to management guidance, rather than focusing solely on absolute NII levels.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Structural CIR Improvement from Restructuring Efficiency Gains

  Post-restructuring, banks benefit from lower fixed cost bases, creating operating leverage where profits grow faster than revenues. This report models one-time restructuring charges separately from subsequent annualized cost savings to distinguish short-term pain from long-term efficiency gains, enabling more accurate CIR forecasting.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ING Groep NV (INGA.AS)

  Direct coverage subject; Q1 earnings beat drives dual upgrade of earnings forecasts and target price

  Strengths

  Continued expansion of liability-side spreads, superior cost-to-income ratio vs. peers, strong capital position with active buybacks, relatively cheap valuation within coverage universe

  Weaknesses

  Other income dragged down by market volatility, CET1 ratio slightly below expectations, additional provisioning pressure from Middle East geopolitical risks

  Comparison

  Relative to Goldman Sachs’ European bank coverage universe, ING ranks in the top 75th percentile on growth and financial returns, while trading at the 12th percentile on valuation multiples—offering compelling risk-adjusted value

  Risks

  Sharp decline in interest rates, higher-than-expected savings rates, increased tax burden, macroeconomic deterioration in key markets, cost overruns, weaker-than-expected capital generation and dividend payouts

Key data

• Q1 Net Profit vs Expectations+9%Beat company-compiled consensus expectations
• Q1 Liability-Side Spread104bpUp 5bp QoQ; full-year guidance raised to midpoint of 100–110bp range
• 2026E Commercial NII Forecast€16.9bnAbove company guidance range of €16.5–16.7bn
• EPS Forecast Revision Magnitude+3%/+3%/+2%2026/27/28E forecasts raised, all significantly above Visible Alpha consensus
• Target Price€31.10Previous: €29.20; implies 23.6% upside
• Share Buyback SizeUp to €1bnImpacts CET1 by ~30bp; fully deducted in Q2
• Q1 CET1 Ratio13.0%12.9% post-buyback deduction; down 10bp QoQ
• 2026E Cost-to-Income Ratio (CIR)51.8%1–2 percentage points below consensus

Impact & implications

The report argues that ING’s outperformance validates its liability-side pricing power and cost discipline—particularly valuable amid heightened interest rate uncertainty in the European banking sector. The earnings upgrades stem not from one-off gains but from structural NII improvements and efficiency enhancements, indicating high earnings quality. The target price increase, combined with a rational P/E roll-forward, reflects analyst confidence in ING’s ability to realize value from medium-term earnings growth. Additionally, the announced share buyback reinforces shareholder return commitments and appears attractive at current valuations.

Risks

• Significant downward shift in expected interest rates
• Higher-than-expected savings rates
• Increased tax burden
• Deterioration in macroeconomic conditions in ING’s key markets
• Worse-than-expected cost progression
• Capital position and shareholder distributions falling short of expectations

What to watch

• Whether liability-side spreads can sustain within or exceed the 100–110bp range
• Progress in extending SRTs to retail operations and resulting capital release
• Realization of annualized cost savings following restructuring-related one-off charges
• Potential further impact of Middle East conflict on asset quality
• Sustainability of commercial NII and fee income in H2 2026